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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2000
Commission File Number: 0-17597
ELITE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
76-025229
(IRS Employer Identification No.)
Texas
(State or other Jurisdiction of
incorporation or organization)
30096
(Zip Code)
6991 Peachtree Industrial Blvd.
Suite 320
Norcross Georgia
(Address of principal executive offices)
(770) 678-969-9146
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes | | No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: | |
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant computed as of May 31, 2000 is $5,754,176.
The number of issued and outstanding shares of the issuer's class of capital
stock as of May 31, 2000, the latest practicable date, is as follows: 34,275,720
shares of Common Stock $.0001 par value.
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ELITE TECHNOLOGIES, INC.
May 2000 Annual Report
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTY
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7a.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
This Annual Report contains various forward-looking statements that are based on
management's belief as well as assumptions made by management based on
information currently available to management. In some cases, you can identify
forward-looking statements by the use of certain terminology, such as "may,"
"will," "should," "would," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of such terms
or other comparable terminology. Any expectations based on these forward-looking
statements are subject to risks and uncertainties. These risks and uncertainties
could affect the Company's future financial and operating results and cause
actual results to differ materially from expectations based on forward-looking
statements made in this document or elsewhere by or on behalf of the Company.
PART I
ITEM 1. BUSINESS GENERAL
Elite Technologies, Inc. (referred to herein as "Elite" or the "Company")is
a full service technology company offering information technology ("IT")services
to small, medium and large enterprises. IT services involve the facilitation of
the flow of information within a company or between a company and external
sources. These services typically involve computer hardware, software and
"integration" efforts to allow diverse systems to communicate with one another.
Elite was founded as a Georgia corporation in 1996 under the name Intuitive
Technology Consultants, Inc. ("ITC"). In July, 1998, ITC Acquisition Group, LLP,
consisting of management of ITC, acquired a majority interest, through a reverse
merger, in CONCAP, Inc.. On April 22, 1999, the Company changed its name to
Elite Technologies, Inc. The Company's charter was revoked on February 11, 2000
for the failure to file franchise tax returns in the State of Texas, however the
Company is presently seeking to reinstate its charter.
Although Elite, through its divisions offered a variety of services in
fiscal 2000, Elite has suspended most of its operations following the
acquisition of Ace Manufacturing Group, Ltd. ("AMG") in April 2000. See
discussions below regarding the business operations of AMG. Elite intends to
acquire other companies to fulfill the services of its divisions. As part of
Elite's acquisition strategy, the Company has entered into an agreement to
acquire substantially all of the capital stock of AC Travel, Inc. and
International Electronic Technologies of Georgia, Inc. Elite does not presently
have any other definitive agreements to acquire additional companies and there
can be no assurance that it will do so.
The Company's principal executive offices are located at 6991 Peachtree
Industrial Blvd., Suite 320, Norcross, GA 30092 (Telephone: (678) 969-9146. The
Company's Internet address is www.elitetech-usa.com.
RECENT DEVELOPMENTS
In June 2000, Elite has signed purchase agreements with AC Travel, Inc. and
International Electronic Technologies of Georgia ("IET"). AC Travel is a
wholesale and retail travel agency, including a website catering to the
international business traveler who is traveling abroad or in the U.S. The
purchase price for all the capital stock of AC Travel is 1,500,000 shares of
common stock, and $300,000. IET provides wholesale and retail sales and
distribution of computer related products. The purchase price for IET is
1,200,000 shares of common stock and $300,000.
Elite's objective is to establish itself as a leading provider of internet
connectivity and content solutions. The company intends to utilize acquisitions
to support the growth of AMG's business, such as content and hardware providers.
The Company intends to utilize AMG's content and advertising platform to serve
as a means by which retailers and other connectivity solutions providers can
access a viewer base with quantifiable online purchasing habits.
THE INFORMATION TECHNOLOGY SERVICES INDUSTRY
Many businesses today need ongoing technology improvement. Sole
proprietorships and Fortune 1000 companies alike need to examine their IT
processes regularly in order to maintain growth. The fast pace associated with
the development of new technologies has created increased demand for IT solution
services. Companies are often forced to rely on external experts for direction
with respect to IT solution services and to lower their internal costs of
implementation of new and upgraded systems.
Corporations face increasing pressures to improve the quality of products,
facilitate implementation of their products and reduce the cost in delivering
"end to end" solutions, solutions which ensure the systems in place function
correctly from start to finish. As a result, companies are using value added
integrators to implement solutions that streamline business processes with their
end users and customers, which improves the flow of critical data within the
company, and outside the organization. These trends, with rapid advances in
technology, are driving organizations from traditional "host-based" legacy
computing systems to more flexible and functional technologies, including the
Internet, Web-based user interfaces, Client / Server architectures, distributed
database management systems and the latest networking and communications
technologies.
Companies are increasingly deploying custom designed software / hardware
applications. These custom applications are designed specifically for the
business needs and goals of each company, and may be composed of multiple
operating systems, databases, programming languages and networking protocols
throughout the corporate enterprise.
In addition to the increasing demand for more responsive technologies,
technology vendors are becoming more complex and individual product life-cycles
are shortening at a faster rate. As a result, IT vendors are under increasing
pressure to bring new products and new versions of proven technology to market
faster and simultaneously to ensure that those products are implemented in a
timely fashion. Thus, these software vendors are outsourcing their services to
value added integrators with experience with multiple platform, application,
integration, and networking support. The convergence of these trends has
resulted in (i) an increasing need within the research and development
departments of key technology vendors to outsource to software service firms a
portion of the development, deployment and testing of their existing and new
products and (ii) an increasing movement of companies toward joint projects with
software service firms that have a high level of expertise in market leading
technologies. Since many software vendors are already under-staffed, software
vendors often prefer not to rely on their internal resources for the design and
implementation of enterprise business systems. Accordingly, a growing number of
corporations and IT vendors are seeking the help of value added integrators with
strong technical expertise in critical emerging technologies to implement high
value "end to end" solutions using a successful and cost-effective approach
which utilizes available resources to complete specific technology plans.
Industry Background - Internet Solutions
Internet solutions have been introduced to corporations over the last 10
years. These Internet solutions (Intranet, Extranet and Corporate Web Sites)
have provided organizations with a completely new set of tools to market,
distribute and offer additional value to their end users who use their products
and services. This new set of tools provides customers with more and improved
ways to communicate, transmit critical data from organization to organization or
organization to customer, create better methods for marketing and provide higher
levels of customer service. The Intranet technology allows a company's employees
to access corporate proprietary information more easily, obtain training on
line, access corporate business applications from their own PC, and communicate
via email. The Extranet is an even more powerful tool. The Extranet allows
corporations to securely distribute critical data outside its corporate Intranet
to customers and business partners.
On the consumer side, Web sites offer a total "end to end" solution. Web
sites allow customers to access product and service offerings more easily and
allow businesses to present advertising, market new and improved products and
services, offer products and services for sale on line, process transactions,
complete orders on line, provide customers with rapid, accurate response time to
their most important issues and ultimately, provide customers with a high level
of customer interaction and support via the Web. Additionally, a business has
the ability to increase its sales and marketing via e-commerce solutions on
their Corporate Web Sites, virtually placing a "24 hour" sales ability within
the company.
Industry Background - Internet Connectivity and Content
While the internet provides a variety of benefits to businesses and
consumers alike, having access to the internet in multiple settings is a
prerequisite for its success. This access, or "connectivity", has become an
entire industry within the internet field. Connectivity at home and office is
typically provided by an Internet Service Provider (ISP), which connects some
type of telephone line or cable line to the user's personal computer or server.
In public places such as airports, hotels, gas stations and retail stores,
Internet Kiosks, which are similar to telephone booths with keyboards, screens
and a connection to the web, have been installed. These kiosks initially served
as simple connections to the web, whereas today the kiosks are being used as
advertising media, information centers and entertainment stations. Kiosks are
being installed throughout the United States and internationally, with focus on
useful, demographically sensitive information, presented in a user-friendly and
entertaining platform.
In addition to the connectivity issue, consumers are really accessing the
internet for the information and entertainment provided online. This information
is known as content. Just as a television and cable line connect consumers to
television services, it is the programming that interests the viewer. Content
provision is also a quickly developing industry throughout the internet world.
Industry Background - Internet Kiosks
As a relatively new industry, Internet Kiosks provide a specific product to
a specific marketplace. More than just a leisure activity, the internet has
become a vital link to communications. In many instances, consumers (both
business and residential) have a need to gain access to the internet while not
at a "home computer". Although laptops continue to provide this service, many
instances arise where the convenience of a laptop with a modem connection is not
available. In this case, an Internet Kiosk is the solution to the need. Allowing
a consumer to access the internet, retrieve e-mail, shop, make travel plans, or
even play interactive games online, the kiosk unit provides inexpensive access
to these any many other activities.
Industry Background - Online Travel Services
Travel services have been proven to be a major revenue center online. Much
more than mere ticket provision, online travel services allow consumers to book
travel, hotels, car rentals, compare rates and even take virtual tours of points
of interest around the world. The travel industry has, in the past five years,
reinvented itself as a result of decreasing commissions paid to travel agents by
the major airlines. Travel agencies have redirected their efforts to concentrate
more on providing value added services and leisure travel. The move to online
services is seen as the critical step to achieve growth over the next decade in
the travel industry.
Industry Background - Computer Hardware and Peripherals
Computer hardware sales was, for many years, the core profit center in the
Information Technology industry. The focus was later shifted toward software.
This shift toward software put pressure on smaller manufacturers and
distributors, until such time as only a handful of major manufactures and
wholesalers remained. Medium to large wholesalers and distributors continue to
thrive, especially ones that use hardware provision as an entry into an
organization's IT department to offer additional goods and services.
OUR SERVICES
Elite has offered diverse services with divisions in IT Staffing, Custom
Software Development and Integration, Internet Hosting, Content and Technical
Development, Hardware Sales and Service and Content Delivery Platforms. Elite
suspended these operations in April 2000 in connection with its acquisition of
AMG. The Company also served as an authorized solution provider and application
developer for leading enterprise-level software products. Prior to April, 2000,
the Company marketed its products and services to small, medium and large
enterprises.
Prior to April, 2000, Elite was organized into three divisions: Elite
Integration, Elitetech.com, and Workstream Staffing. Elite Integration served as
the outsource, integration and software Value Added Reseller for clients and
software partners; Elitetech.com offered Internet Development and Internet
Solutions; and Workstream Staffing offered full service IT Staffing services.
AMG
In April 2000, Elite suspended most of its operations, in anticipation of
the acquisition of several companies in the internet kiosk industry. In April
2000, Elite acquired Ace Manufacturing Group, Ltd., ("AMG"). AMG designs, builds
and markets an internet "pay by minute" browser (kiosk) used primarily in
hotels, airports and entertainment establishments. Elite intends to utilize AMG
to acquire additional companies to augment the internet kiosk marketed by AMG,
including companies providing content, hardware and other related sectors of
commerce. Elite purchased all of the capital stock of AMG for 2,000,000 shares
of common stock, and $250,000.00.
AMG sells a variety of internet kiosk units, customizable for their
individual application and environment. The Company markets its kiosks through
direct sales, web promotion and through corporate sponsorship programs. AMG is
also developing a content and advertising platform that provides quick access to
the most frequently used services online, such as travel services, email and
e-commerce. AMG is marketing its kiosks to retailers, airports, municipalities,
gas stations, hotels and other public areas where internet access is needed. The
kiosks not only provide connectivity to the public, but allow advertisers and
retailers to promote their offerings in an interactive format.
AMG specializes in communication implementation of Public Internet pay
stations. The Public Internet pay stations have three separate niche markets:
(1) Automated Business Center, (2) Entertainment Access and (3) Advertising
Kiosk.
The Automated Business Center provides a solution for business travelers.
The Automated Business Center allows business travelers to access E-mail, send
or receive a fax, make color copies, or surf the Internet, in frequently
traveled business locations. The Automated Business Center's are directed
towards hotels, suites, convention centers, and airports. Payment options
include cash, credit cards and optional coupons to make it easy to meet the
versatile needs of today's traveler.
The Automated Business Center's are in phase two of operation. These
features include the following: - Internet Browsing - 2000 Hot Buttons offering
single click access to stock quotes, new publications, search engines,
government sites, etc.
- - Send and retrieve E-mail
- - Send and receive fax capabilities
- - Color copy capabilities
- - Full screen display advertising
- - Scroll bar advertising with web site links
- - Daily usage log of transactions
- - Appwatch monitors the Browser software to ensure the application is
always running
- - Bootwatch enables the Automated Business Center to automatically
re-boot itself daily
- - Fortress allows the operation system to be password protected
The following features are under development:
- - Video E-mail
- - Video conferencing
- - Full screen display advertising with coupon program
- - Internet usage destination log
- - Microsoft word processing capabilities
- - Document editing capabilities
The multi-functional Automated Business Center has enough computing
capabilities for future module add-ons to meet the ever-growing technology of
today's fast advancing electronic revolution. AMG has telephony capabilities in
the research and development process.
The Entertainment Access Internet Terminal caters to restaurants, coffee
shops, turnpike stations, auto service stations, grocery stores, shopping malls,
convenient stores, roller rinks, arcades, movie theaters, and museums. The kiosk
offers over 2000 1-click web sites. The Entertainment Access Internet Terminal
is programmable, enabling custom programming, for the various sites. It also
includes on-line sports books, trivia, car manufacturers, classifieds and dating
services.
The Advertising Kiosk implemented in the Automated Business Center scenario
offers the business traveler the same functionality-access to e-mail, send and
receive fax, color copies, or surf the Internet. The Advertising Kiosk
implements a coupon program, allowing the hotel to issue each guest $10 dollars
in coupons to be used at the kiosk.
The Advertising Kiosk can be installed in the hotel free of charge to offer
the guest free services via the coupon program-the owner of the Advertising
Kiosk generates revenue from various companies advertising on the kiosk. The
Advertising Kiosk can charge to print out the advertisements which may offer
directions, discounts, phone numbers or the advertisements can be printed out
free of charge. The advertisers vary in range from local to national companies.
Elite Integration, Elitetech.com and Workstream Staffing
The Elite Integration division was the "outsource services group" of Elite
through April, 2000. Elite Integration offered custom software development,
including Client/Server applications, design and development to small, medium
and large enterprises. Elite maintains its partnership as a tier one integrator
for Eastman Software and a premier provider for Hewlett-Packard. Elite expects
to continue participating in these relationships throughout the next year.
Elitetech.com, is capable of providing web development projects and
Internet based server applications. Such services can include web site design,
Internet deployment and strategies, web enabled applications, network solutions,
e-commerce solutions, search engine placement services, and multimedia creation.
Elitetech.com currently includes "Virtualbride.com." The Virtual Bride is
intended to be a full service on-line wedding planner and bridal registry
targeted for deployment in 30 US markets.
Workstream Staffing
Workstream Staffing was the Company's IT staffing augmentation division
which located and offered permanent employees, temporary contractors and
temp-to-perm (try before you hire) employees through April 2000. Workstream has
developed proprietary software, the "RMS" Recruiting Management System, to
manage the client-contractor relationship from pre-screening to renewal. The
result was improved customer service and reduced collection times.
INTEGRATION OF ACQUIRED COMPANIES
Management believes that the market offers acquisition candidates in each
of the three areas of interest to the Company (Integration, Staffing and
Internet). The acquired companies are intended to operate with the standardized
sales and marketing procedures of Elite, with senior level personnel heading an
individual task force for each operations function.
Standardized accounting, business practices and corporate culture will be
implemented throughout the organization. It is also anticipated that, upon
closing of the acquisitions, the respective presidents of each entity will also
be elected to the board of directors of Elite. This is to insure that the proper
level of communication and support exists between Elite and the subsidiaries as
well as between and among the subsidiaries themselves. Since the acquisition
strategy of Elite calls for the purchase of entities that add value to AMG in
terms of content, manufacturing and distribution, the integrated companies will
require standardized business practices and marketing efforts.
SALES AND MARKETING
The Company intends to utilize a consultative approach to the target
market, whereby partnership relationships are preferred over vendor
relationships. Elite sales representatives and those of our software partners
will be encouraged to sell the services of each division of the Company. At such
time as Elite completes the remaining acquisitions scheduled to close in first
quarter of fiscal year 2001, the company intends to create and implement a
specific sales and marketing strategy. Until such time as other acquisitions are
completed the companies will continue to market as per their pre-existing
strategies.
Sales
The Company does not currently have an active sales force. We
anticipate that Elite's sales force will consist of division
vice presidents, regional account executives, inside sales
lead generators, project managers, presales technical support
and executive level management to help assist with the sale of
services and solutions. AMG utilizes the services of
subcontracted Value Added Resellers (VAR) to sell its kiosk
units. AMG allows a VAR to sell its products, giving the VAR a
percentage of the net profit of the sale as compensation. This
allows AMG to extend its market access without hiring
additional workforce on a salaried basis.
Elite's sales force will be responsible for creating
referencable accounts and a high level customer satisfaction.
The sales team will be given the task of uncovering additional
sales opportunities within their assigned accounts. Elite's
account executives will be assigned quarterly revenue quotas,
and will be paid commissions based on the percentage level of
attained quota. Project plans and implementation costs will be
prepared by the project managers and the account executive.
All project pricing will be approved by the divisional vice
president, whose performance and compensation will be based
solely on the division's total generated revenue.
Marketing
Elite intends to outsource its marketing requirements and
collateral material development. These materials and efforts
will be updated periodically to reflect new operations and
acquisitions.
Elite intends to strategically market its products and
services through its executive staff and business partners.
Elite intends to promote its corporate image through the use
of customer testimonials and partner alliances.
STRATEGY
The Company is seeking growth through two individual strategies. First,
the Company continues to seek acquisition targets to grow its business through
the acquisition and roll up of synergetic companies who meet certain criteria.
This criteria includes:
(1) A minimum revenue stream of 5 million dollars annually;
(2) Profitable or nearly profitable;
(3) Strong management able to commit for a minimum of three years
following Elite's purchase of the company; and
(4) Products or services in line with the general direction of Elite.
Secondly, Elite intends to grow its already acquired companies through
strong management, cross marketing and repeat customer usage of multiple
products and services of Elite. Although management intends to continue seeking
acquisition targets, no guarantee can be made that any acquisitions will be
completed.
COMPETITION
The information technology services industry is highly competitive with
limited barriers to entry and rapid change. The industry is served by many
national, regional and local companies, including full service agencies and
specialized temporary services agencies. Elite's primary competitors include a
variety of market segments, including:
o medium to large sized hardware manufacturers and distributors
o medium to large sized systems consulting and implementation firms;
o medium to large sized management consulting firms.
Many of Elite's competitors have significantly greater financial, technical
and marketing resources and greater name recognition. In addition, Elite
competes with its clients' internal resources, particularly where such resources
represent a fixed cost to the client. Such competition may impose additional
pricing pressures. Elite expects that the level of competition will remain high
in the future.
INTELLECTUAL PROPERTY RIGHTS
Elite's success in the information technology services business will depend
upon its software deployment and methodology and other proprietary intellectual
property rights. Elite does not hold any patents or registered copyrights.
Instead, Elite intends to rely on a combination of trade secret, nondisclosure
and other contractual arrangements and technical measures, and copyright and
trademark laws, to protect its proprietary rights. Elite generally enters into
confidentiality agreements with its employees, consultants, clients and
potential clients and limits access to and distribution of its proprietary
information, however, no guarantees can be made that infringement will not take
place.
Elite's businesses will include the development of custom software
applications in connection with specific client engagements. Ownership of such
software is typically assigned to the client. In addition, Elite intends to
develop object-oriented software components that can be reused in software
application development and certain foundation and application software
products, or software "tools."
Although Elite believes that its services and products do not infringe on
the intellectual property rights of others, other parties may nevertheless make
infringement claims against the Company in the future.
GOVERNMENT REGULATION
As of May 31, 2000, Elite had a workforce which includes information
technology consultants who are foreign nationals working in the United States
under H-1B permits. The number of these individuals is expected to rise in the
coming months and years. Accordingly, Elite must comply with United States
immigration laws. Due to the limited number of H-1B permits approved each year,
Elite may not be able to recruit or retain enough information technology
professionals to meet its personnel requirements. Furthermore, Congress and
administrative agencies with jurisdiction over immigration matters periodically
express concerns over the levels of legal and illegal immigration into the U.S.
These concerns often result in proposed legislation, rules and regulations aimed
at reducing the number of work permits that may be issued. Any reduction in the
number of work permits that may be issued or change in immigration laws which
impede the hiring or retention of foreign nationals could cause Elite to incur
additional unexpected labor costs and expenses.
EMPLOYEES
As of May 31, 2000, Elite employed 15 full-time employees and consultants.
Elite is not a party to any collective bargaining agreements and considers its
relationships with its employees to be satisfactory. These employees consist of
8 administrative employees, and 7 technical employees.
RISK FACTORS
The Company's business operations and financial results are subject to
various uncertainties and future developments that cannot be predicted. The
principal risks and uncertainties are identified below.
Changes in Quarterly Operating Results
The Company has experienced fluctuations in its quarterly results. Revenues
and gross margins in a particular quarter will vary depending upon a number of
factors, including:
o general economic conditions;
o the number and requirements of client engagements;
o employee hiring, utilization and turnover rates;
o changes in billing rates;
o the amount of billing days, consultant vacation days and paid time
off;
o the number, terms and size of acquisitions, if any, during a period.
Volatility of Stock Price
The Company's stock price has been volatile. Future revenues, earnings and
stock prices may be subject to wide swings due to variations in operating and
financial results, anticipated revenue and/or earnings growth rates, competitive
pressures, market place conditions and other factors. The Company's stock price
is predominantly based on current expectations of sustainable future revenue and
earnings growth rates. Any failure to meet anticipated revenue and earnings
levels in a period or any negative change in the Company's perceived long-term
growth prospects would likely have a significant adverse effect on the Company's
stock price.
Termination of Client Contracts
Fees from project-based contracts have been a fundamental component of the
Elite Integration division revenues. If client information technology
requirements or budgets were to decrease or their initiatives delayed and/or if
such clients were to seek alternatives to relying upon the Company's current
service offerings, the Company's revenues would be adversely impacted. Many of
the Company's engagements are terminable without client penalty. An
unanticipated termination of a major project can result in an increase in
underutilized employees and a decrease in revenues and profits.
Inability of Company to Retain Qualified Information Technology Consultants
The Company's continued success will depend in large part on its ability to
attract, retain and motivate highly-skilled employees, particularly project
managers and other senior technical personnel. Qualified IT professionals are in
high demand and are likely to remain in demand.
Liability for Employee and Client Actions
The Company may incur liability through its placement of consultants in
client workplaces. Potential liability includes:
o errors and omissions;
o misuse of client proprietary information;
o misappropriation of funds;
o discrimination and harassment;
o theft of client property; or
o other criminal activity.
Although the Company has not experienced any such material claims, it
cannot be certain that it will not experience such claims in the future. To
reduce its exposure, the Company maintains insurance covering general liability
and errors and omissions. However, insurance may not cover all such claims, and
insurance coverage may not continue to be available in an amount adequate to
cover the above liabilities.
Dependence on a Successful Acquisition Strategy
Management expects the future growth of the Company will be based on future
acquisitions. Competition for acquisition candidates may result in fewer
potential acquisitions, as well as less advantageous acquisition terms,
including, but not limited to, less advantageous price terms.
Maintenance of Rapid Growth
The Company cannot guarantee that it will be able to expand and
successfully manage its growth. The Company's ability to grow will depend on a
number of factors, including the following:
o competition;
o availability of capital;
o ability to maintain margins;
o ability to recruit and train additional qualified personnel; and
o management of costs in a changing technological environment.
ITEM 2. PROPERTIES
The Company occupies approximately 3,000 square feet of office space in
Norcross, Georgia on a month-to-month, verbal agreement, at monthly rate of
$4,900.
AMG occupies approximately 11,500 square feet of office and warehouse space
in Doraville, Georgia under a renewable yearly lease at a monthly rate of
$6,000. The current lease is scheduled for renewal December 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. While the ultimate results and outcome cannot be
determined, management does not expect that these matters will have a material
effect on the Company's results of operations or financial position.
Subsequent to May 31, 2000, actions involving the Company include claims which
the Company intends to pursue vigorously. See the notes to the Consolidated
audited financial statements of Elite Technologies, Inc., and Subsidiaries for
the year ended May 31, 2000 for details.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal year 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
Elite's Common Stock was traded on the OTC Bulletin Board Market under the
symbol "ETCH" (OTC: BB ETCH). In November, 2000, the company, due to its failure
to comply with NASD Rule 6530, was "delisted" from the OTC and is now traded on
the "Pink Sheets". Upon the company's filings, and compliance with Rule 6530,
the company intends to file application for relisting on the OTC. (Formerly,
under the name CONCAP, Inc., the Company's securities traded under the symbol
"CNCG" on the OTC Bulletin Board Market until May, 1999). The Company's stock
was not traded actively until the Second quarter of the fiscal year ended May
31, 1999. Such quotations may reflect inter-dealer prices without retail markup,
markdown or commissions and may not necessarily represent actual transactions.
The following table sets forth the range of the low and high closing prices
of the Common Stock as reported on the OTC Bulletin Board for the last two
fiscal years.
During the 2000 fiscal year, Elite issued 2,439,500 shares without
registering the shares under the Securities Act of 1933 as amended composed of
the following:
In fiscal year 2000 the company issued an aggregate of 2,439,500 shares to
76 investors pursuant to Regulation D. The average purchase price of the common
shares was $0.34 per share.
FISCAL YEAR ENDING MAY 31, 2000
Quarter Low High
---------------------------- ---------------------- --------------------------
First 3.25 6.38
Second 0.14 3.88
Third 0.13 1.31
Fourth 0.27 2.75
FISCAL YEAR ENDING MAY 31, 1999
Quarter Low High
---------------------------- ---------------------- --------------------------
First 1.00 5.937
Second 3.00 5.937
Third 6.00 10.25
Fourth 4.75 10.00
There were 568 holders of record of Common Stock as of September 8, 2000.
The Company has not paid any cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. The decision to pay dividends
will be made at the discretion of the Board of Directors of the Company and will
depend upon the Company's operating results and other factors.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical consolidated financial data presented below were
derived from the Company's consolidated financial statements, which as of and
for the year ended May 31, 2000 were audited by Kirschner & Associates, as of
and for the year ended May 31, 1999 were audited by KPMG LLP, and for the year
ended May 31, 1998 were audited by KPMG LLP.
The selected financial data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
consolidated financial statements, the related notes, and the independent
auditors' reports for the years ended May 31, 2000, 1999 and 1998, which
contains an explanatory paragraph that states the Company's recurring losses
from operations and net capital deficiency raise substantial doubt about the
entity's ability to continue as a going concern, appearing elsewhere in this
Form 10-K. The consolidated financial statements and the selected data do not
include any adjustments that might result from the outcome of that uncertainty.
Years Ended May 31, 2000, 1999 and 1998
Statement of Operations Data
2000 1999 1998
Revenue From Services (1) $298,230 $1,937,317 $1,516,088
Salaries, Wages and Benefits $571,121 $2,136,613 $1,190,609
Other Operating Expenses $1,481,216 $1,654,167 $681,335
Depreciation and Amortization $547,512 $116,846 $27,562
Stock Based Compensation $10,751,765 $827,431 $0
Investment Banking Fees $15,872,719 $0 $0
Operating Loss ($28,926,103) ($2,797,740) ($383,418)
Other Expenses, Net $66,036 $90,624 $54,704
Interest Expense $16,100 $0 $0
Interest Income ($13,192) $0 $0
Settlement on Rescinded Acquisition $80,800 $0 $0
Loss Before Income Taxes ($29,075,847) ($2,888,364) ($438,122)
Income Taxes $0 $0 $0
Net Loss Per Share
Common Stock: Basic and Diluted (2) ($1.42) ($0.26) ($0.04)
Number of Shares Used in Computing
Diluted Earnings per Share 20,631,704 11,150,355 10,619,170
BALANCE SHEET DATA: May 31, 2000 and 1999
2000 1999
Total Assets $5,872,191 $2,331,198
Total Liabilities $3,174,935 $1,771,581
Working Capital Deficit ($1,192,782)($1,082,175)
Stockholders' Equity $2,697,256 $559,617
(1) Revenues shown include only revenue since date of
acquisitions of the subsidiaries, and do not reflect any
revenue related to Temporary Help Connection which were
accounted for on filings prior to year end May 31, 1999 by
the Company because of the rescission of the acquisition
further described in the May 31, 1999 "Notes to Consolidated
Financial Statements."
(2) Since inception, the Company has not declared or paid any
cash dividends on its common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data and the Company's Consolidated Financial Statements included
elsewhere herein.
INTRODUCTION
From its inception in June of 1988 as CONCAP, a Texas corporation, until
July, 1998, the Company existed primarily as a development stage company created
to seek, investigate, and if warranted, acquire domestic and foreign business
opportunities. The Company intended to seek long-term growth potential as
opposed to short-term earnings. In July of 1998, CONCAP merged with ITC.
Following the transaction, former ITC shareholders held 72 percent of the shares
of CONCAP. CONCAP changed its name to Elite Technologies, Inc. on April 22,
1999. All subsidiaries and holding companies were then merged into Elite, the
Texas corporation.
Through May 31, 2000, the Company completed five acquisitions in the IT
sector. All acquisitions have been accounted for as purchases in this filing and
are reflected as such on the Consolidated Financial Statements. This does not
take into account the year to date financial information of these acquisitions,
but only provides for results of operations since the date of acquisition of the
individual companies.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 2000 COMPARED WITH YEAR ENDED MAY 31, 1999
Revenues. Revenues from operations for 2000 decreased 84.6% from 1999. The
decrease in revenues related to (i) the internal restructuring of the business
and (ii) the subsequent decrease in resources available to fund existing
operations during the restructuring.
Two additional acquisitions in fiscal year 2001 were completed. These
acquisitions are consistent with the new acquisition strategy and corporate
focus of Elite as detailed in above "Recent Acquisitions" section.
Salaries, Wages and Benefits. Salaries, Wages and Benefits decreased 73.3%
from 1999. The decrease is due to terminations of staff related to the
restructuring of the company.
It is anticipated that with increased product lines resulting from the
acquisition of AMG and the acquisitions consummated in FY 2001, additional
salaries will be needed for operations.
Management expects the return on salary and benefit expenditures in fiscal
year 2001 to exceed the investment made in fiscal year 2000, although there is
no assurance that it will do so.
Other Operating Expenses. Other Operating Expenses decreased by 10.5% to
$1,481,216 attributed to (i) reductions in legal and professional costs, and
(ii) restructuring of the business.
Depreciation and Amortization. Elite depreciates its assets, including
goodwill, on a straight-line basis over three to five years. Depreciation and
amortization increased by 369.00% over 1999. This is attributed to the
amortization of goodwill recorded in connection with the acquisitions completed
in 2000.
Stock Based Compensation. Elite recorded $10,751,765 in stock based
compensation during the fiscal year 2000. Management expects to continue with a
stock based compensation bonus plan to attract and retain new talent for the
Company.
Operating Loss. Operating losses increased from $2,797,740 to $28,926,103
representing a 944.00% increase in the loss due to increased levels of stock
based compensation, investment fees and depreciation and amortization.
Other Expenses Net. Other Expenses net decreased 27.0% from $90,624 in 1999
to $66,036 in 2000.
Loss Before Income Taxes (Net Loss). Net Loss increased 907.00% due to
reasons mentioned above.
YEAR ENDED MAY 31, 1999 COMPARED WITH YEAR ENDED MAY 31, 1998
Revenues. Revenues from operations for 1999 increased 27.78% from 1998.
The increase in revenues related to (i) the internal growth of the business and
(ii) inclusion of the operating results from the date of acquisition of the
three businesses acquired in 1998 and 1999.
The Company signed with Coleman and Company Securities as its
investment banker in April, 1999. Accordingly, most operations were reduced or
halted at Elite to allow the Company to restructure its divisional presence,
corporate identity, marketing, and internal organization. This caused a dramatic
reduction in the growth rate and an increase in corporate expenditures to
complete the restructure. Management plans to maximize the new Company's new
structure and growth through the acquisition of profitable companies.
Salaries, Wages and Benefits. Salaries, Wages and Benefits increased
79.46% from 1998. The increase is due to (i) increases in cost of employees,
insurance and benefit programs, (ii) continued investment in internal
infrastructure employees supporting operations of the Company, (iii) increased
management roles as a result of the acquisitions, and (iv) higher costs to
support growth.
With increased product lines, additional salaries are incurred while
expanding divisional based selling, including retention of technical staff
internally for R&D, as well as expanding resources for available project sales.
Other Operating Expenses. Other Operating Expenses grew by 142.78% to
$1,654,167, attributed to increased costs of legal, accounting, leases of
equipment and property, advertising and other necessary expenditures. Management
expects to recoup the majority of this expenditure in fiscal year 2000 as the
acquired companies continue their operations and growth. The increase in other
operating expenses was the result of one-time expenses incurred in connection
with the restructuring of the Company and the implementation of new
infrastructure to complement the restructuring.
Depreciation and Amortization. Elite depreciates its assets, including
goodwill, on a straight-line basis over three to five years. Depreciation and
amortization increased by 323.94% over 1998. This is attributed to the
amortization of goodwill recorded in connection with the acquisitions completed
in 1999.
Stock Based Compensation. Elite recorded $827,431 in stock based
compensation during the fiscal year 1999 in connection with the options granted
to certain officers of the Company. Management expects to continue with a stock
based compensation bonus plan to attract and retain new talent for the Company.
Operating Loss. Operating losses increased from $438,122 to $2,888,364,
representing a 559.26% increase in the loss due to increased levels of salary
and increased operating expenses as a result of the completion of those
acquisitions, as well as the investment of the restructure of the company into
three "branded" divisions.
Other Expenses Net. Other Expenses net increased 65.66% to $90,624 in 1999
from $54,704 in 1998.
Loss Before Income Taxes (Net Loss). Net Loss increased 559.26% due to
reasons mentioned above.
The following table summarizes the results of operating losses, interest cost,
net loss, and per share amounts for the years ended May 31, 2000, and the two
immediately preceding years.
2000 1999 1998
--------------------- --------------------- ---------------------
Operating Losses ($28,926,103) ($2,797,740) ($383,418)
Interest Costs on Additional
Debt 16,100 0 0
Other Expenses, Net 133,644 90,624 54,704
--------------------- --------------------- ---------------------
Net Loss ($29,075,847) ($2,888,364) ($438,122)
===================== ===================== =====================
Loss Per Share ($1.42) ($0.26) ($0.04)
===================== ===================== =====================
The significant changes in the loss amounts for 2000 are primarily attributable
to Common stock valuation on newly issued shares for common stock based
compensation, Using fair market value at the time of the transaction.
See disclosures in the notes accompanying the consolidated financial statements
of Elite Technologies, Inc. and Subsidiaries as of and for the year ended May
31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have principally related to the
acquisition of businesses, working capital needs and capital expenditures for
growth. These requirements have been met through a combination of private
placements and internally generated funds. Although the Company incurred direct
costs for acquisitions, the Company completed these acquisitions primarily in
stock for stock transactions.
The Company currently lacks the working capital required to continue as a
going concern and to achieve its acquisition program and internal growth
objectives. Management expects to enter into agreements for debt or equity
funding in the first or second quarter of fiscal year 2001 in order to meet the
needs of internal growth and acquisitions. Management believes that such
agreements for debt or equity funding will be sufficient to enable the Company
to continue operating as a going concern. However, there is no assurance that
agreement for such additional funding will be consummated.
Prior to May 31, 2000 the Company completed a private placement of
securities for a total of $841,000. Additional placements and the exercising of
warrants available to private placement investors were completed subsequent to
year-end.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Statement was effective for the Company beginning June 15,
2000. The new Statement requires all derivatives to be recorded on the balance
sheet at fair value and establishes accounting treatment for various types of
hedges. The Company has not invested in derivative instruments nor participated
in hedging activities and therefore does not anticipate there will be a material
impact on the results of operations or financial position from Statement No.
133.
ITEM 7a. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into any transactions using derivative
financial instruments or derivative commodity instruments and believes its
exposure to interest rate risk and other relevant market risk is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data required hereunder are
included in this Annual Report as set forth in Item 14(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
KPMG LLP had served as the auditors of the Company's financial statements
for the fiscal years ended May 31, 1998 and 1999. On July 25, 2000 the Company
dismissed KPMG LLP. August 2, 2000, the Company engaged the firm of Feldman,
Scherb & Co., P.C. to audit its fiscal 2000 financial statements. The change to
Feldman, Scherb & Co., P.C. was ratified by the Company's Board of Directors on
August 2, 2000. Feldman, Sherb and Co., P.C. failed to complete the audit as
they were hired to do by the Company, and therefore, were terminated as of
November 9, 2000. The company had engaged other auditors (On October 20, 2000)
having realized that Feldman, Sherb may not complete their assigned duties. As
of November 9, 2000 the Company officially appointed Kirschner and Associates,
P.C., as auditors, thereby replacing Feldman, Scherb & Co. In connection with
the audits of the two fiscal years ended May 31, 1999 and the subsequent period
through July 25, 2000, there were no disagreements with KPMG LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to their
satisfaction, would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement.
The reports of KPMG LLP on the Company's financial statements for each of
the past two fiscal years ended May 31, 1999 did not contain an adverse opinion,
a disclaimer of opinion or qualification or modification as to audit scope or
accounting principles. The reports did include an explanatory paragraph that
described substantial doubt about the Company's ability to continue as a going
concern.
Feldman Sherb & Co., P.C. was appointed as audit firm of Elite
Technologies, Inc. on August 2, 2000. Kirschner & Associates was officially
engaged as audit firm on November 9, 2000. This change of audit firms is due to
lack of timely performance on the part of Feldman Sherb.
Throughout the engagement of Feldman Sherb, the Company repeatedly demanded
from Feldman Sherb the completion of the Company's audit. Feldman Sherb
inexplicably delayed the completion of the audit. Kirschner and Associates was
unofficially retained by the company substantially prior to the termination of
Feldman Sherb. Kirschner and Associates was appointed official audit firm upon
the termination of Feldman Sherb, due to the reasons stated above. Feldman
Sherb, during their engagement with the Company, rendered no notification of
disputes, scope limitations or other adverse audit findings.
Following their termination by the Company in a written communication to
the US Securities and Exchange Commission, Feldman Sherb has claimed that they
were unable to satisfy themselves regarding the accounting of certain common
stock issuances and that verbal representations were in conflict with
documentation regarding these matters. The Company, in its written response to
the US Securities and Exchange Commission, disputes this claim and affirms that
the documentation provided was accurate and consistent with said verbal claims.
Feldman Sherb & Co., P.C. disagrees with the aforementioned statements,
however the Company affirms its position in these matters and has so responded
via its 8-K filings with the US Securities and Exchange Commission.
PART III
Items 10. Directors and Officers of the Registrant.
During the fiscal year 2000, there were the following directors, officers
or beneficial owners of more than 10% of the company's equity securities:
Scott Schuster Director, CEO
Jason Kiszonak VP
David Aksoy Director
Randy Ragsdale Director
EXECUTIVE OFFICERS
The following table provides a summary of the Company's executive officers
and directors as of May 31, 2000:
Name Age Position Held
- ----------------------------------------- ---------- ------------------------------------------
Scott Schuster 36 Chairman of the Board, CEO and Director
David Aksoy 36 Director
Jason Kiszonak 28 Senior Vice President of Public Relations
Stephen Randy Ragsdale 34 President, AMG and Director
Scott A. Schuster, age 36, has served as Chairman of the Board, Chief
Executive Officer, President and Director of Elite since its formation. Prior to
the formation of the Company, Mr. Schuster ran an IT consulting practice. Mr.
Schuster has over 12 years experience in the IT industry. He has worked on, or
designed IT solutions for the United States Postal Service, Delta Airlines, the
Southern Company (for the Atlanta Olympic Games of 1996), and many other Fortune
500 companies.
David Aksoy, M.D., age 36, has served as Director at Elite since 1998. Dr.
Aksoy also retains his physician's office where he has served as a general
practitioner for the last seven years.
Jason Kiszonak, age 28, has served as Senior Vice President of Public
Relations since he joined the Company in March of 1999 through the acquisition
of Elevation Strategic Partners. Prior to joining Elite, for the period from
1995 until joining the Company Mr. Kiszonak worked as an independent television
programming consultant in the US and abroad. Mr. Kiszonak is a graduate of
Georgia Tech with a degree in international affairs.
Stephen Randy Ragsdale, serves as President of AMG. Mr. Ragsdale began AMG
in 1995. Prior to joining Elite, he was president of a company marketing
products in the telecommunications industry.
Based solely upon a review of (i) Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e), promulgated under the
Securities and Exchange Act of 1934 (the "Exchange Act"), during the Company's
fiscal year ended May 31, 2000, and (ii) Forms 5 and amendments thereto and/or
written representations furnished to the Company by any director, officer or ten
percent security holder of the Company (collectively, `Reporting Persons")
stating that he or she was not required to file a Form 5 during the Company's
fiscal year ended May 31, 2000, it has been determined that all of the above
Reporting Persons are delinquent with respect to their reporting obligations set
forth in Section 16(a) of the Exchange Act.
ITEM 11. Executive Compensation
Annual Compensation Long Term Compensation
Awards Payouts
Names and Year Salary($) Bonus ($) Other Annual Restricted Securities LT. Payouts All Other
Principal Compensation Stock Underlying Compensation
Position ($) Award(s) Options ($)
($)
- --------------- -------- ------------- -------------- --------------- ----------- ------------- ------------ ------------
Scott 2000 250,000* 1.5 Percent 0 0 0*** 0 0
Schuster, CEO of Net**
Jason Kiszonak 2000 150,000 0 0 0 0 0 0
Scott 1999 250,000* 1.5 Percent 0 0 0*** 0 0
Schuster, CEO of Net**
Jason Kiszonak 1999 150,000 0 0 0 0 0 0
Scott 1998 150,000 1.5 Percent 0 0 0 0 0
Schuster, CEO of Net
* Per Employment Agreement, but substantially waived salary during the year
due to the financial condition of Company
** Per Employment Agreement, but no bonus paid *** Failed to exercise options
during fiscal period
OPTIONS
No options were granted during the fiscal year ended May 31, 2000.
EMPLOYMENT AGREEMENTS
The company currently has employment agreements with Scott Schuster. The
term of the contract is five years with a base salary of $250,000.00 annually
and bonuses equal to 1.5 percent of the net profits of the company. During the
past fiscal year, Schuster has waived a substantial portion of his salary in
view of the company's financial condition. The employment agreements also
provide for termination based on death, disability, voluntary resignation or
material failure in performance and for severance payments upon termination
under certain circumstances. The agreements contain certain provisions that will
preclude each executive from competing with the Company for a period of two
years from the date of termination of employment. The company has no stock
option plans in place at this time.
DIRECTORS COMPENSATION
The company provides for compensation to each Board of Directors member in
the amount 250,000 shares of common stock for each year served.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNER BENEFICIAL OWNER
- ------------------------------- ----------------------------- ----------------------------- -----------------------------
COMMON Scott Schuster 5,900,000 17.22%
3885 Crestwood Pkwy.
Duluth GA 30096
COMMON Jason Kiszonak 3,850,000 11.24%
3885 Crestwood Pkwy.
Duluth GA 30096
COMMON David Aksoy 2,681,250 7.86%
3885 Crestwood Pkwy.
Duluth GA 30096
COMMON Steve Kaye 4,500,000 13.13%
3885 Crestwood Pkwy.
Duluth GA 30096
COMMON Randy Ragsdale 1,985,000 5.79%
3885 Crestwood Pkwy.
Duluth GA 30096
All Executive Officers and Directors as a Group: (5 Persons) 18,916,250
ITEM 13. Certain Relationships and Related Transactions.
The company issued 2,400,000 shares to Scott Schuster as replacement for
shares he placed as collateral on behalf of the company to receive funds pending
certain financing. During the fiscal year 2000, Mr. Schuster's loan with accrued
interest as of May 31, 2000 and 1999 is $289,084 and $215,583, respectively.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K(a)
The following documents are filed as part of this Annual Report or incorporated
by reference:
1. Financial Statements
See the Index to Financial Statements on page F-1 of this Annual Report.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are included in the
consolidated financial statements or are inapplicable, and therefore have been
omitted.
3. Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- - ------ -------------------
1 Reports on Form 8-K incorporated by reference
- --------------------------------------------------------------------------------
2.1 Agreement dated June 24, 1998 by and among CONCAP, Inc., and Intuitive
Technology Consultants, Inc. (Incorporated by Reference) 1
- --------------------------------------------------------------------------------
2.2 Purchase Agreement dated November 15, 1998, by and among CONCAP, Inc.,
and Troxtel Holding Company d/b/a Temporary Help Connection
(Incorporated by Reference) 2
- --------------------------------------------------------------------------------
2.3 Purchase Agreement dated March 31, 1999 by and between CONCAP, Inc.,
and Elevation Strategic Partners, Inc., (Incorporated by Reference) 3
- --------------------------------------------------------------------------------
2.4 Agreement dated November 5, 1998 by and between Scott Schuster and
Scanlan Music, Inc. (Incorporated by Reference)
- --------------------------------------------------------------------------------
2.4.1 Assignment Agreement dated November 9, 1998 by and between Scott
Schuster and CONCAP, Inc. 4
- --------------------------------------------------------------------------------
2.5 Agreement dated April 1, 1999 by and between CONCAP, Inc. and Virtual
Enterprise, Inc. (Incorporated by Reference) 7
- --------------------------------------------------------------------------------
3 Amendment to Articles of Incorporation of CONCAP, inc. dated April
22, 1996
- --------------------------------------------------------------------------------
10.1 Purchase Agreement with Ace Manufacturing Group, Inc.
- --------------------------------------------------------------------------------
10.2 Purchase Agreement with IET Startek of Georgia
- --------------------------------------------------------------------------------
10.3 Purchase Agreement with AC Travel
- --------------------------------------------------------------------------------
10.4 Employment Agreement of Scott Schuster
- --------------------------------------------------------------------------------
10.5 Employment Agreement of Randy Ragsdale
- --------------------------------------------------------------------------------
(1) Incorporated by reference from the Registrant's Current Report on Form
8-K dated July 8, 1998
(2) Incorporated by reference from the Registrant's Current Report on Form
8-K dated November 15, 1998
(3) Incorporated by reference from the Registrant's Current Report on Form
8-K dated April 16, 1999
(4) To be filed by amendment
(5) Included on the Signature page of this Annual Report
(6) Incorporated by reference from the Registrant's Current Report on Form
10-K filed September 15, 1999
(7) Incorporated by reference from the Registrant's Current Report on Form
10-KA filed September 29, 1999
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
May 31, 2000, 1999 and 1998
With Independent Auditors' Report Thereon
Report of Independent Auditors 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Elite Technologies, Inc., and Subsidiaries
We have audited the accompanying consolidated balance sheet of Elite
Technologies, Inc. and Subsidiaries (the "Company") as of May 31, 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Elite Technologies, Inc. and Subsidiaries as of May 31, 1999 and
for the years ended May 31, 1999 and 1998, were audited by other auditors whose
report dated August 25, 1999, on those statements included an Explanatory
paragraph that described the going concern uncertainty discussed in Note 1 to
the financial statements.
We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2000 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Elite
Technologies, Inc. and subsidiaries as of May31, 2000, and the results of their
operations and their cash flows for the year ended May 31, 2000, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
KIRSCHNER & ASSOCIATES, P.C.
Marietta Georgia
November 9, 2000, except for Note 13
As to which the date is February 21, 2001
F-2
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
May 31, 2000 and 1999
Assets
Current assets: 2000 1999
Accounts receivable, less allowance for doubtful
accounts of $ 0 and $26,000 at May 31, 2000 and $ -- $ 285,309
May 31, 1999, respectively
Note receivable on convertible debt obligation 527,470 --
Receivable from officer 289,084 215,583
Other current assets 30,000 53,619
----------- ------------
Total current assets 846,554 554,511
Property and equipment, net 31,004 66,304
Excess of cost over net assets of businesses acquired,
less accumulated amortization of $597,198 and
$ 87,181 at May 31, 2000, and May 31, 1999, respectively 4,987,844 1,688,415
Other assets 6,789 21,968
------------ -------------
$5,872,191 $ 2,331,198
============ =============
Liabilities and Stockholders' Equity
Current liabilities:
Cash overdrafts $ 35,106 $ 210,713
Notes payable 112,895 88,504
Accounts payable 523,541 245,811
Accrued expenses 114,292 33,942
Federal payroll taxes payable 931,888 629,415
State payroll taxes payable 321,614 251,177
Payable to factoring company -- 177,124
------------ --------------
2,039,336 1,636,686
------------ --------------
Long-term liabilities:
Notes payable 100,000 37,399
Deferred rent expense -- 97,496
Convertible note payable 1,035,599 --
------------ --------------
Total liabilities 3,174,935 1,771,581
------------ --------------
Stockholders' equity:
Common stock, $.0001 par value; 500,000,000 shares
authorized; 34,275,720 and 12,571,670 issued and
outstanding at May 31, 2000 and 1999, respectively 3,427 1,257
Additional paid-in capital 35,206,634 3,995,318
Retained earnings (deficit) (32,512,805) (3,436,958)
------------- --------------
2,697,256 559,617
------------- --------------
$5,872,191 $ 2,331,198
============= ===============
See accompanying notes to consolidated financial statements
3
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended May 31, 2000, 1999 and 1998
2000 1999 1998
Revenues - net $ 298,230 $ 1,937,317 $ 1,516,088
Salaries, wages and benefits 571,121 2,136,613 1,190,609
Stock based compensation 10,751,765 827,431 --
Depreciation and amortization 547,512 116,846 27,562
Other operating expenses 1,481,216 1,654,167 681,335
Investment banking fees 15,872,719 -- --
-------------- -------------- --------------
Operating loss (28,926,103) (2,797,740) (383,418)
Interest expense 16,100 -- --
Interest income (13,192) -- --
Settlement on rescinded acquisition 80,800 -- --
Other expenses, net 66,036 90,624 54,704
-------------- -------------- --------------
Loss before income taxes (29,075,847) (2,888,364) (438,122)
Income taxes -- -- --
-------------- -------------- --------------
Net loss $(29,075,847) $(2,888,364) $ (438,122)
============== ============== ==============
Net Loss Per Share of Common
Stock:
Basic and Diluted $ (1.41) $ (0.26) $ (0.04)
============== =============== ==============
Weighted Average Number of
Common Shares Used In Calculating
Net Loss Per Share of Common
Stock :
Basic and Diluted 20,631,704 11,150,355 10,619,170
============== =============== ===============
See accompanying notes to consolidated financial statements
4
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended May 31, 2000, 1999 and 1998
Total
Additional Retained stockholders'
Common Stock paid-in earnings equity
Shares Amount capital (deficit) (deficit)
Balances at May 31, 1997 10,619,170 $1,062 $134,938 ($110,472) $25,528
Net loss -- -- -- (438,122) (438,122)
----------- ----------- ----------- ------------ ------------
Balances at May 31, 1998 10,619,170 1,062 134,938 (548,594) (412,594)
Issuance of common stock in acquisitions 850,000 85 1,649,915 -- 1,650,000
Stock based compensation -- -- 827,431 -- 827,431
Issuance of common stock in private placements,
net of issuance costs of approximately 50,000
shares and $352,000 1,102,500 110 852,390 -- 852,500
Commitment to issue common stock for investment
banking services -- -- 126,667 -- 126,667
Contributed capital from THC -- -- 289,277 -- 289,277
Other capital contributed -- -- 114,700 -- 114,700
Net loss -- -- -- (2,888,364) 2,888,364)
------------ ---------- ----------- ------------ -------------
Balances at May 31, 1999 12,571,670 1,257 3,995,318 (3,436,958) 559,617
Stock based compensation 6,962,500 696 10,751,069 -- 10,751,765
Issuance of common stock in
acquisitions 2,312,500 231 3,559,215 -- 3,559,446
Issuance of common stock in
private placements 840,050 84 840,916 -- 841,000
Issuance of common stock for
investment banking services 10,339,000 1,034 15,871,685 -- 15,872,719
Issuance of common stock in
settlement of rescinded acquisition 1,250,000 125 80,675 -- 80,800
Contributed capital from AMG -- -- 107,756 -- 107,756
Net loss -- -- -- (29,075,847) (29,075,847)
------------ ---------- ----------- ------------ -------------
Balances at May 31, 2000 34,275,720 $3,427 $35,206,634 ($32,512,805) $2,697,256
============ ========== =========== ============ =============
See accompanying notes to consolidated financial statements
5
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended May 31, 2000, 1999 and 1998
2000 1999 1998
Cash flows to operating activities:
Net loss ($29,075,847) ($2,888,364) ($438,122)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 547,512 116,846 27,562
Stock based compensation 10,751,765 827,431 --
Commitment to issue stock for investment
banking services 15,872,719 126,667 --
Settlement of rescinded acquisition 80,800 -- --
Decrease (increase) in:
Accounts receivable 285,309 (5,975) (247,359)
Unbilled revenues -- -- 66,562
Other assets 38,798 (38,312) (20,480)
Increase (decrease) in:
Accounts payable 277,730 195,327 44,141
Federal payroll taxes payable 302,473 186,842 381,945
State payroll taxes payable 70,437 161,367 89,810
Deferred rent expense (97,496) 55,910 41,586
Accrued expenses and other current liabilities 80,350 33,942 (5,452)
--------------- -------------- ---------------
Net cash used in operating activities (865,450) (1,228,319) (59,807)
--------------- -------------- ---------------
Cash flows to investing activities:
Purchases of property and equipment -- (7,922) (17,552)
Acquisition of businesses (250,000) (15,000) --
Receivable from officers (73,501) (130,584) (70,602)
--------------- -------------- ---------------
Net cash used in investing activities (323,501) (153,506) (88,154)
--------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 841,000 852,500 --
Proceeds from issuance of long-term debt 608,129 -- --
Repayment of long-term debt (68,000) -- --
Advances from (payments to) factoring company, net (177,124) (43,434) 220,558
Proceeds from (payment on) short-term notes 52,797 -- (101,250)
Other capital contributions -- 114,700 --
Contributed capital 107,756 289,277 --
Increase in cash overdrafts (175,607) 190,855 19,858
Increase (decrease) in related party advances -- (22,073) 2,100
--------------- -------------- ---------------
Net cash provided by financing activities 1,188,951 1,381,825 141,266
--------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents -- -- (6,695)
Cash and cash equivalents at beginning of year -- -- 6,695
--------------- -------------- ---------------
Cash and cash equivalents at end of year -- -- --
=============== ============== ===============
See accompanying notes to consoliodated financial statements
6
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended May 31, 2000, 1999 and 1998
2000 1999 1998
Supplemental disclosures of cash flow information
cash paid during the year for:
Interest -- $ 34,669 $ 9,280
============ ============ ===========
Income taxes -- -- --
============ ============ ===========
Acquisition of businesses:
Fair value of assets acquired, including goodwill $ 3,809,446 $1,790,903 --
Fair value of liabilities assumed -- (90,903) --
Promissory note issued -- (35,000) --
Fair value of common stock issued (3,559,446) (1,650,000) --
============ ============ ===========
Net cash paid for acquisitions $ 250,000 $ 15,000 --
============ ============ ===========
Additional debt financing:
Note payable -- stockholder $ 100,000 -- --
Convertible note payable 1,035,599 -- --
less receceivable on convertible debt (527,470) -- --
============ ============ ===========
Proceeds from issuance of long-term debt $ 608,129 -- --
============ ============ ===========
7
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2000, 1999 and 1998
1. SUMMARY OF SIGNIGICANT ACCOUNTING POLICIES
a) Description of Business
Prior to April 2000, Elite Technologies, Inc. offered diverse services in
IT Staffing, Custom Software Development and Integration, Internet Hosting,
Content and Technical Development, Hardware Sales and Service and Content
Delivery Platforms. The Company also served as an authorized solution provider
and application developer for leading enterprise-level software products. These
services were marketed to small, medium and large enterprises.
Elite suspended these operations in April 2000 in connection with its
acquisition of Ace Manufacturing Group, Ltd. (AMG). The current composition of
core businesses is described in the Business Acquisitions Note to the
Consolidated financial statements.
AMG designs, builds and markets an internet "pay by the minute" browser
(kiosk) used primarily in hotels, airports, and entertainment establishments.
Elite intends to utilize AMG to acquire additional companies to augment the
internet kiosk business as marketed by AMG, including companies providing
content, hardware and other related sectors of commerce.
b) Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Elite
Technologies, Inc. and its subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet, income and expenses for the period, and disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
Business combinations, which have been accounted for under the purchase
method of accounting, include the results of operations of the acquired business
from the date of acquisition. Net assets of the companies acquired are recorded
at their fair value at the date of acquisition.
8 (Continued)
c) Recognition of Revenue and Expenses
Prior to the suspension of operations, revenue related to the placement of
temporary and permanent employees was recognized upon the delivery of the
service. Contract revenue from software development and implementation was
recognized under the percentage of completion method. Web site development and
consulting services are generally performed on a time and materials basis and
are recognized as the services are performed. All other revenue and expense is
accrued as incurred. Revenues are reported net of cost of the goods sold. In
settlement of factoring obligations, account receivable amounts as of the
balance sheet date were written off in their entirety.
d) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Net cash overdrafts
are included in liabilities section of the Company's balance sheet. Changes in
cash overdrafts are shown in the financing section of the Company's statement of
cash flows.
e) Property and Equipment
Property and equipment are carried at cost. Expenditures for maintenance
and repairs that do not significantly extend the useful lives of the assets are
expensed as incurred, while major replacements and betterments are capitalized.
Depreciation is computed principally using the straight-line method over
the estimated useful lives of the assets, generally five years for computer
equipment and furniture and fixtures, and three to five years for purchased
software.
Cost of property sold or otherwise disposed of and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in income currently.
f) Excess of Cost Over Net Assets of Business Acquired
The excess of cost over net assets of businesses acquired (goodwill) is
being amortized using the straight-line method over five years. The amortization
period is based on, among other things, the nature of the products and markets,
the competitive position of the acquired companies, and the adaptability of
changing market conditions of the acquired companies. At each balance sheet
date, the Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation.
9 (Continued)
The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate equal to the rate
of return that would be required by the Company for a similar investment with
like risks. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
g) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
h) Stock Option Plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, in accounting for its fixed
plan stock options, in lieu of the fair value approach recommended by the
Financial Accounting Standards Board in its Statement No. 123. Under the
intrinsic value method, compensation expense would generally be recorded on the
date of grant only if the current market price of the underlying stock exceeds
the exercise price.
i) Financial Instruments and Risk
Based on their short maturities and interest rates estimated to be
available to the Company, management has determined that the carrying values of
all financial instruments approximate fair value at May 31, 2000 and 1999.
Management has evaluated the Company's credit risk. Financial instruments,
which potentially subject the Company to concentrations of credit risk, consist
primarily of temporary cash investments and accounts receivable.
The Company maintains cash balances at several Atlanta, Georgia area banks
for general operations, payroll, and short-term investments. The FDIC insures
cash balances up to $100,000. As no accounts receivable exist at May 31, 2000,
the Company has no exposure to that credit risk on that day.
10 (Continued)
j) Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell.
k) Comprehensive Income
On June 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. The Company has no "other
comprehensive income" to report for the years ended May 31, 2000, 1999 and 1998.
l) Net Earnings (Loss) Per Common Share
Basic earnings (loss) per common share available to common stockholders are
based on the weighted-average number of common shares outstanding. Diluted
earnings (loss) per common share available to common stockholders are based on
the weighted-average number of common shares outstanding and dilutive potential
common shares, such as dilutive stock options and convertible debt.
Options to purchase 4,000,000 and 2,250,000 shares of common stock at May
31, 2000 and 1999, respectively, were excluded from the computation of diluted
earnings per share because they were anti-dilutive. Convertible note payable, if
converted, would generate savings of $82,848 in interest costs. The effect of
the pro forma improvement in net loss exceeds the pro forma increase in the
number of the shares. Accordingly, the loss per share of $1.41 rather than $1.38
is disclosed on the face of the Company's statement of operations, since the
effect of the conversion would be antidilutive.
m) Industry Segments
On June 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information. The Company's only operation with significant activity for the
years ended May 31, 2000, 1999 and 1998 was its staffing operation.
11 (Continued)
n) Management's Plans
The Company has incurred significant recurring operating losses at May 31,
2000 and carries a working capital and a retained earnings deficit. Management's
business philosophy is to increase market share by virtue of acquiring companies
with inherent symmetry, autonomy and profitability.
Management believes that this philosophy has been evidenced by the current
acquisition of Ace Manufacturing Group. Ltd., as well as the post reporting
acquisitions of International Electronic Technology of Georgia, Inc. and AC
Travel, Inc. Management is actively pursuing new debt and equity financing
arrangements. In addition, controls on operating efficiency and effectiveness
are being considered. Management is continually evaluating capital budgeting
opportunities and the Company's overall profitability. However, any results of
their plans and actions cannot be assured. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
2. FORMATION OF THE COMPANY
Intuitive Technology Consultants, Inc. ("ITC") was incorporated on August
9, 1996. On June 2, 1997, Phoenix International Industries, Inc. ("Phoenix")
acquired 100% of the outstanding shares of ITC by issuing 1,500,000 shares of
restricted common stock valued at $320,000. During the period that ITC was owned
by Phoenix, the former owner of ITC agreed to rescind the transactions. As a
result of the rescission, 100% of the common stock of ITC was returned to its
former owner in exchange for the return of 1,413,000 Phoenix common shares, a
cash payment of $60,000 and notes payable of $290,000 to Phoenix. The notes
payable were to reimburse Phoenix for intercompany amounts receivable from the
Company. Under provisions of the rescission agreement, the notes payable have
been reduced to $-0- due to misrepresentations and breaches of contract on the
part of Phoenix. Pushdown accounting has not been applied to the acquisition of
ITC by Phoenix or to the unwinding, because the transactions were not considered
"arms-length" with third parties.
On July 8, 1998, ITC merged with Concap, Inc. ("Concap"). Former ITC
shareholders received 7,200,000 shares of Concap common stock in exchange for
all shares of ITC and gained control of Concap. Since ITC was a private
operating company and Concap was a public shell company (i.e., public company
with no operations), the merger was accounted for as if ITC was the acquirer. On
April 30, 1999, the Company changed its name to Elite Technologies, Inc.
12 (Continued)
3. BUSINESS ACQUISITIONS
a) Temporary Help Connection, Inc. ("THC")
Effective November 15, 1998, the Company acquired a one hundred percent
(100%) member interest in Troxtel Holding Company, LLC d/b/a Temporary Help
Connection ("THC"), a Michigan company, in exchange for 1,250,000 shares of the
Company's common stock. In addition, the Company agreed to provide to THC
accounts receivable financing of up to 75% for approved accounts. THC is engaged
in the business of light industrial temporary staffing.
Due to misrepresentations and breaches of provisions of the purchase
agreement on the part of THC, on April 12, 1999, the Company "unwound" the
acquisition of THC as provided for in the purchase agreement. Litigation arising
out of this transaction, which asserted claims against THC's former owner, for
among other things, fraud and breach of contract, has been settled.
Since the acquisition of THC was unwound, no assets, liabilities, or
results of operations of THC are included in the accompanying consolidated
financial statements. THC's cash receipts, which were remitted to ITC in excess
of cash disbursements, made by ITC on behalf of THC during the period of THC's
control by the Company have been credited to additional paid-in capital.
Stock issued as part of this transaction, which was being held in escrow,
was issued and sold pursuant to a court order. The proceeds were used to satisfy
$80,800 in litigation costs.
b) Scanlan Music, Inc. ("Scanlan")
Effective November 5, 1998, the Chairman of the Company acquired all of the
issued and outstanding shares of Scanlan, a retail seller of musical
instruments, in exchange for a promissory note of $35,000. On November 9, 1998,
the Chairman assigned all rights, titles, and inventory of Scanlan as well as
the promissory note to the Company. The acquisition was treated as being made by
the Company using the purchase method of accounting and, accordingly, the net
assets acquired have been recorded at their estimated fair market value at the
date of acquisition. During the year ended May 31, 2000 management suspended
operations of Scanlan Music pending a review of its place in the Company's
strategic future. At May 31, 2000, no decision had been reached regarding this
matter.
13 (Continued)
c) Elevation Strategic Partners, Inc. ("Elevation")
Effective March 31, 1999, the Company acquired all of the issued and
outstanding shares of Elevation Strategic Partners, Inc. a Delaware company, in
exchange for approximately 1,000,000 shares of the Company's common stock
(valued at $1.50 per share) and the assumption of debt of approximately $50,000.
Elevation is engaged in the business of incubating and growing technology and
Internet based companies. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the net assets acquired have been
recorded at their estimated fair market value at the date of acquisition.
Goodwill of approximately $1.550 million resulted from this March, 1999
transaction concurrent with the Company's issuance of 1,000,000 shares. During
fiscal year ended May 31, 2000, an additional 62,500 shares were issued which
correspondingly created goodwill of approximately $319,000. This transaction was
instituted as a stock market hedge by virtue of a declining market price
specific to that of Elite Technologies, Inc., and Subsidiaries.
d) Virtual Enterprises, Inc. ("Virtual")
Effective April 1, 1999, the Company acquired all of the issued and
outstanding shares of Virtual, an internet portal that allows users to plan a
wedding with links to various vendors in the industry, in exchange for 100,000
shares of the Company's common stock (valued at $1.50 per share) and the
assumption of debt of approximately $41,000. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the net assets
acquired have been recorded at their estimated fair market value on the date of
acquisition. Goodwill of approximately $190,000 resulted from this transaction.
e) Ace Manufacturing Group, Ltd. (AMG)
Effective March 15, 2000 the Company acquired all of the issued and
outstanding shares of AMG, in exchange for 2,000,000 shares of the Company's
common stock (valued at $1.66 per share) plus $250,000. The acquisition was
accounted for using the purchase method of accounting and, accordingly, the net
assets acquired have been recorded at their estimated fair market value on the
date of acquisition. Goodwill of approximately $3,490,000 resulted from this
transaction.
f) Pro-Forma Financial Information
The results of operations of the acquired companies have been included in
the Company's consolidated statements of operations beginning on the following
dates: Scalan - November 5, 1998; Elevation - March 31, 1999; Virtual - April 1,
1999; and AMG - March 15, 2000.
The unaudited pro forma results of operations of the Company for the year
ended May 31, 2000 as if the acquisition of AMG, International Electronic
Technology of Georgia,
14 (Continued)
Inc., and AC Travel, Inc. (See disclosure "Other Events And
Contingencies"), had been effected on June 1, 1999 are summarized as follows:
Unaudited
-----------------
-----------------
Revenues - net $ 12,703,014
-----------------
-----------------
Net loss applicable to common shareholders $ (4,074,028)
-----------------
-----------------
Basic E.P.S. (loss per share) $ ( .20)
-----------------
-----------------
Diluted E.P.S. (loss per share) $ ( .20)
-----------------
Generally accepted accounting principles usually call for comparative
presentation and the relative pro forma effects on that of the preceding period.
However, comparable summarized data for AC Travel, Inc. for the year ended May
31, 1999 are not available. Accordingly, no presentation is possible to show the
unaudited pro forma results of operations of the Company with these acquisitions
had they been effected on June 1, 1998. The unaudited pro forma results do not
necessarily represent results which would have occurred if the acquisitions had
taken place on the dates indicated nor are they necessarily indicative of the
results of future operations.
4. ACCOUNTS RECEIVABLE
An allowance for doubtful accounts is maintained at a level which
management believes is sufficient to cover all potential credit losses including
potential losses on receivables sold. The activity in the allowance for doubtful
accounts for the three years ended May 31, 2000, 1999, and 1998 is a follows:
Allowance for Reductions
doubtful Balance at taken against the Balance at
accounts beginning Charged allowance end of
of period to expense period
- ------------------ ------------------ ---------------- ---------------------- ------------------
- ------------------ ------------------ ---------------- ---------------------- ------------------
1998 $ -0- 90,791 (77,791) 13,000
1999 13,000 106,559 (93,559 26,000
2000 26,000 -0- (26,000) $ -0-
5. PAYROLL TAX LIABILITIES
The amounts shown as due for federal and state payroll taxes payable on the
Company's balance sheet are primarily amounts due from prior years and the first
quarter of the year ended May 31, 2000. Management is meeting current payroll
obligations and is pursuing a plan to fulfill its past obligations to federal
and state governments.
15 (Continued)
6. DEBT AGREEMENTS
o Stockholder Financing
The Company's current liabilities include notes payable of $112,895. This
debt was assumed in conjunction with the acquisitions of Elevation and Virtual
and remains unpaid at May 31, 2000. There are no note agreements establishing
terms for repayment of these debts in as much as the debts were immediately
payable pursuant to the relative stock acquisition agreement.
The Company's long-term liabilities include $100,000 payable to a
stockholder in the total amount of $100,000. Interest is being accrued at the
applicable federal rate. The proceeds are payable on demand. Management's
understanding of stockholder intentions is that no demand will be made within
the current year.
o Other Financing
The Company's long-term liabilities also include $1,035,599 of 8%
convertible debentures. The Company entered into a financing agreement with a
lending source on March 27, 2000. The total financing package included an
authorized issue of $3,000,000 of convertible debentures. Conversion into common
stock is based on a formula of the lesser of $2.00 per share or 75% of market
value.
The original stated maturity date was March 31, 2001, with interest
accruing quarterly. The initial financing phase was to have been for $2,000,000,
out of a total of $3,000,000, and to have been separated into two distinct
parts. The Company received the first part of approximately $508,000 in the
current reporting period. However, the second phase was not properly funded and
escrowed. A notice of default was issued on behalf of the Company.
Management is currently attempting to renegotiate details on the loan for
future favorable financing. Management believes that the debt obligations will
either be forgiven or an extension of debt maturities will exceed one year.
Management is adamant that no amounts will be paid within the next twelve
months. Accordingly, until ultimate disposition of the original obligation is
resolved, the entire amount is classified as non-current on the Company's
balance sheet.
16 (Continued)
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following assets:
2000 1999
Computer equipment $ 74,416 $ 74,416
Purchased software 32,430 32,430
Furniture and fixtures 26,579 26,579
------------- ---------------
------------- ---------------
133,425 133,425
------------- ---------------
Less accumulated depreciation 102,421 67,121
------------- ---------------
------------- ---------------
$ 31,004 $66,304
============= ===============
8. OPERATING LEASES
The Company leases office space on an informal month-to-month basis. Lease
expense for the year ended May 31, 2000 was $107,360. Occasional equipment is
also leased on a short-term basis.
9. RECEIVABLE FROM OFFICER
The Company has made loans to a certain officer of the Company. These loans
are to be evidenced by an employment agreement payable in not more than sixty
monthly principal and interest installments starting with the first day of the
month following the month in which the loan is made, with interest at the rate
of three percent per year on the unpaid balance of the loan outstanding. In the
event of default of any installment of principal and interest when due, the
entire balance of principal and accrued interest becomes payable on demand.
During the year ended May 31, 2000, the Company has extended additional
borrowings to the officer, and has not yet received collections. Management is
electing to waive the current default restrictions at the present time.
Subsequent to the date of these financial statements, the officer has repaid
over half of the obligation, and management believes the remaining amount will
be collected within one year. Accordingly, the entire receivable of $289,084 is
classified as a current asset on the Company's May 31, 2000 balance sheet.
Interest is accrued on the entire receivable at the applicable federal rate.
17 (Continued)
10. INCOME TAXES
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
May 31, 2000 and 1999 are estimated and presented as follows:
2000 1999
Deferred income tax assets:
Net operating loss carry forwards $3,196,911 $ 1,106,238
Other, net 595,899 425,889
---------------- ---------------
---------------- ---------------
Total gross deferred income tax assets 3,792,810 1,532,127
Less valuation allowance 3,787,333 1,528,215
---------------- ---------------
---------------- ---------------
Net deferred income tax assets 5,477 3,912
Deferred income liability- (5,477) (3,912)
---------------- ---------------
---------------- ---------------
Net deferred income tax asset (liability) $ -- $ --
================ ===============
================ ===============
Deferred income tax assets as of May 31, 2000 have been fully offset by
valuation allowances. The increase in the valuation allowance during the year
ended May 31, 2000 is $2,259,118. The valuation allowances have been established
equal to the full amounts of the deferred tax assets net of deferred tax
liabilities, since the Company is not assured that it is more likely than not
that these benefits will be realized.
At May 31, 2000, the Company had estimated operating loss carryforwards for
income tax purposes of approximately $4,600,500, which are available to offset
future federal and state taxable income, if any, through 2020. Due to the
separate return limitation year rules of the consolidated return regulations, it
is estimated that the use of approximately $943,000 of loss carry forwards is
restricted. In addition, due to changes in the ownership of various members of
the consolidated group, the use of an additional $468,000 of losses is
restricted by virtue of Internal Revenue Code Section 382 limitations.
11. STOCKHOLDERS' EQUITY
a) Completion of Reverse Merger
As a result of the reverse merger completed on July 8, 1998 (see note 2),
the equity of the
18 (Continued)
Company reflects the historical equity of ITC retroactively restated to
reflect the 7,200,000 Concap shares received in the merger. In addition, the
common stock and additional paid-in capital accounts have been adjusted to
reflect the par value of the outstanding stock of Concap after giving effect to
the shares issued in the merger.
b) Stock Options and Stock Based Compensation
On July 15, 1998, as part of an employment agreement, an officer of the
Company was granted the option to purchase 2,000,000 shares of common stock at
an exercise price of $.10 per share. Of the stock options, 1,000,000 were
scheduled to vest on August 31, 2000 with the remaining options vesting on
August 31, 2001. The options expire one year from the vesting date.
On March 15, 1999, as part of an employment agreement, another officer of
the Company was granted the option to purchase 250,000 shares of common stock at
an exercise price of $.10 per share. Of the stock options, 125,000 were
scheduled to vest on August 31, 2000 with the remaining options vesting on
August 31, 2001. The options expire one year from the vesting date.
During the year ended May 31, 2000, employment agreements granting the
option to purchase stock shares at an exercise price of $.10 per share were
forfeited and cancelled.
The Company applies the provisions of APB Opinion No. 25 and related
interpretations in accounting for stock options. The Company recognized
compensation expense of approximately $827,000 in connection with options
granted during the year ended May 31, 1999 as the exercise price was less than
the market price of the stock on the date of grant. A summary of the status of
the employment stock option plans at May 31, 2000 and 1999, and the changes
during the years then ended is presented below:
2000 1999 Weighted
Shares Shares Average
Underlying Underlying Exercise
Options Options Price
------------------ ---------------- ----------------
------------------ ---------------- ----------------
Outstanding, beginning of year 2,250,000 -0- $.10
Plus: Granted -- 2,250,000 .10
Less: Forfeited and cancelled (2,250,000) -- .10
------------------ ---------------- ----------------
------------------ ---------------- ----------------
Outstanding, end of year -0- 2,250,000 $-0-
================== ================ ================
19 (Continued)
The weighted average fair value of options granted during 1999 and on the
date of the grant was $1.38 per share using the Black Scholes option-pricing
model with the following weighted average assumptions: expected volatility of
58.65%, expected dividend yield of 0%, risk-free interest rate of 5.5%, and an
expected option life of 3.25 years.
In addition, the Company has a separate plan awarding stock based
compensation. In June, 1999, the Company issued 612,500 shares of restricted
common stock to six employees as an incentive for these employees to continue
employment. In June, 1999, the Company also issued 300,000 shares of common
stock to a consultant for future consulting services and issued 250,000 shares
of common stock to a former ITC stockholder. The Company applies the provisions
of APB Opinion No. 25 and related interpretations in accounting for this
compensation. The Company recognized stock based compensation expense, primarily
for officer bonuses, of approximately $10,750,000 during the year ended May 31,
2000.
c) Investor and Private Placement Activity
In June and July 1998, a former officer of Concap purchased 400,000 shares
of common stock of the Company for $200,000.
In April, 1999, the Company entered an agreement to issue shares of the
Company's common stock in exchange for investment banking services. The Company
recorded expense and additional paid-in capital for the pro rata share of the
fair value of the total agreement of $15,872,719 and $126,667 related to the
services performed in the years ended May 31, 2000 and 1999, respectively. The
fair value of the total agreement was determined based on the fair value of
shares of the Company's common stock committed to be issued as part of the
agreement.
In April 1999, the Company commenced the sale of its common stock in a
private placement offering. As of May 31, 1999, 652,000 shares of common stock
had been sold for $652,500, net of issuance costs of approximately $352,000 and
50,000 shares of common stock issued to the investment banker. During the year
ended May 31, 2000, 840,050 shares of common stock were issued through private
placement with $84 and $840,916 credited to common stock and paid-in capital,
respectively.
20 (Continued)
d) Other Capital Contributions
For the year ended May 31, 1999, an officer of the Company contributed
$114,700 to the Company to fund operations. This contribution has been reflected
as additional paid-in capital since it is required to be repaid in common stock
of the Company based on the fair value of the stock on the date of the
contribution, commencing two years from the date that the contribution was made.
For the year ended May 31, 2000, $107,756 of paid-in capital resulted from the
acquisition of AMG.
12. MAJOR CUSTOMERS
For the year ended May 31, 2000, two customers accounted for approximately
62% and 71% of total revenues and cash collections, respectively. For the year
ended May 31, 1999, two customers accounted for approximately 62% and 71% of
total revenues and accounts receivable, respectively. For the year ended May 31,
1998, two different customers accounted for approximately 47% and 27% of total
revenues and accounts receivable, respectively.
13. OTHER EVENTS AND CONTINGENCIES
a) Subsequent Investing and Financing Transactions
In June, 2000, the Company sold additional shares of its common stock in
private placement offerings. Approximately 2,000,000 shares of common stock were
sold at $0.25 per share.
On June 27, 2000 the Company entered into an agreement to acquire 100% of
outstanding shares of International Electronic Technology of Georgia, Inc., in
exchange for 1,200,000 shares of the Company's common stock. In August, 2000,
the Company issued the 1,200,000 shares of common stock called for in the
agreement
On June 1, 2000 the Company entered into an agreement to acquire 100% of
the outstanding shares of AC Travel, Inc. in exchange for 2,000,000 shares of
the Company's common stock and $300,000 in cash. The Company has advanced
$175,000 on the agreement.
b) Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. While the ultimate results and outcome cannot be
determined, management does not expect that the ultimate disposition of these
matters will have a material adverse effect on the Company's results of
operations or financial position. Subsequent to the date of these financial
statements, actions involving the Company include the following claims, both of
which the Company intends to pursue vigorously.
21 (Continued)
On June 26, 2000, a complaint was filed against the Company alleging breach
of contract in the amount of $28,256. Counsel believes it is impossible to
ascertain the likelihood of success of either party on their claims and
defenses.
On October 24, 2000, an action was filed against Intuitive Technology
Consultants, Inc. (ITC), the predecessor to the Company, for breach of contract
by which ITC was sold by plaintiff. Counsel estimates that the amount at issue
is less than $290,000 and believes it is impossible to determine the likelihood
of success of plaintiff.
On July 20 and August 17, 2000, the Company entered into legal actions
against former stockholders and an investment firm for failure to follow Rule
144 in their premature sale of the Company's common stock on the open market.
Management intends to pursue the matter to protect the integrity of market
valuation of its stock and is attempting to recover the value of the stock from
sellers and receive damages from the investment firm.
c) Compliance Review
Management received a compliance review letter from the United States
Securities and Exchange Commission dated November 20, 2000. The principle
provisions of the letter involve interpretation of valuation practices of the
Company's common stock issued subsequent to May 31, 1999 as seen by management
and contrasted with the views of the Commission.
Management believes a per share price established by a concurrent private
placement of $1 per share, less discounts for restriction and volume, is the
appropriate measure. In accordance with generally accepted accounting
principles, the SEC mandates a price per share commensurate with that of freely
trading shares as of the date of specific transactions with the application of
significantly limited discounts as the correct measure.
Management has responded to the Commission in detail citing both
theoretical and empirical evidence supporting the case of the May 31, 2000
financial statements and related Form 10-K as originally filed but has agreed to
restate the financial statements in accordance with the wishes of the SEC staff.
Accordingly, certain financial information triggered by stock issuance since May
31, 1999 has been restated.
22 (Continued)
The following schedule summarizes the major differences between management
and the Commission as impacting the Company's financial position as of May 31,
2000, and the results of operations for the year then ended:
Form 10-K and Form 10-K/A and
financial statements financial statements
as originally filed as amended
Stock based compensation $904,125 $10,751,765
Depreciation and amortization 437,622 547,512
Investment banking fees 1,481,250 15,872,719
Net loss (4,726,848) (29,075,847)
Loss per share (0.23) (1.41)
Goodwill, net of amortization 2,609,609 4,987,844
Total assets 3,493,956 5,872,191
Additional paid-in capital 8,479,400 35,206,634
Retained earnings (deficit) (8,163,806) (32,512,805)
Stockholders' equity 319,021 2,697,256
23
Independent Auditors' Report
The Board of Directors and Stockholders
Elite Technologies, Inc.:
We have audited the consolidated balance sheet of Elite Technologies, Inc.
and subsidiaries (the "Company") as of May 31, 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended May 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Elite
Technologies, Inc. and subsidiaries as of May 31, 1999, and the results of their
operations and their cash flows for each of the years in the two-year period
ended May 31, 1999, in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are also described in
note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of the uncertainty.
/s/ KPMG
Atlanta, Georgia
August 25, 1999
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: November 10, 2000 ELITE TECHNOLOGIES, INC.
By:/s/ Scott Schuster
Name: Scott Schuster
Title: CEO
By:/s/ Jason Kiszonak
Name: Jason Kiszonak
Title: Director
By:/s/ David Aksoy
Name: David Aksoy
Title: Director
By:/s/ Stephen Randy Ragsdale
Name: Stephen Randy Ragsdale
Title: Director
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the date indicated.
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